In re Stoner, No. 11-10864; U.S. Bankruptcy Court (DNJ); opinion by Kaplan, U.S.B.J.; filed March 6, 2013. DDS No. 42-6-9317 [20 pp.]

The trustee, Thomas Orr, filed a motion objecting to exemptions seeking to prohibit the debtor, Robert Stoner, from claiming a homestead exemption under 11 U.S.C. § 522(d)(1) in real estate previously owned by his father. The debtor opposes the trustee’s motion and contends that he is entitled to take the exemption because the real estate passed directly to him at his father’s death and because he is permitted to amend his bankruptcy petition and schedules at any time prior to the close of his case.

The trustee argues that the will did not distribute the property to the debtor or his siblings. Rather, the trustee asserts that the will simply provided for the equal division of the estate among the decedent’s surviving children. Thus, the trustee contends that the debtor did not own the property and that, at the time of the bankruptcy filing, the debtor held, at most, a contingent expectation of a distribution from the probate estate. Further, the trustee points out that the will names the debtor as a fiduciary to distribute the property of the estate, and the property, in fact, was sold at some point prior to filing the amended schedules. The proceeds were then distributed according to the will. Therefore, the trustee concludes that the debtor never acquired an ownership interest in the property that would entitle him to an exemption under 11 U.S.C. § 522(d)(1).

The debtor contends that he had been living with his father in order to care for him for more than a year prior to the date he filed the petition. The debtor also asserts that the property passed directly to him immediately on his father’s death. The debtor cites to N.J.S.A. 3B:1-3 and Egner v. Egner in support of his position. In response to the trustee’s argument that the property passed to the fiduciary at the time of the decedent’s death, the debtor submits that as the executor, he held an interest in the property on the date of the bankruptcy filing, entitling him to an exemption.

Held: The debtor’s mere occupancy of the property at the time of filing, even when coupled with his expectancy under the will, does not entitle him to claim a homestead exemption.

The question before the court is whether, at the time the petition was filed, the debtor held an interest in the decedent’s property, such that the interest entitled him to a residential exemption under 11 U.S.C. § 522(d)(1).

At the time of the bankruptcy filing, the debtor, as executor under the will, possessed only bare legal title to the property and a contingent interest as a beneficiary under the will. The court must examine whether the debtor’s interest in the property may be exempted as an interest in real property that the debtor uses as a residence. The question becomes whether the debtor used the property as a residence within the meaning of 11 U.S.C. § 522(d)(1).

The term "residence" is undefined in the bankruptcy code. One line of cases adopts the "plain meaning approach," providing debtors with greater freedom to choose the real estate that they wish to claim as exempt under 11 U.S.C. § 522(d)(1). A second line of cases equate a "residence" under § 522(d)(1) to what is a "homestead" under state law and look to the law in the state where the property is located to determine the meaning of "homestead." The court finds it appropriate to follow the line of cases that equate "residence" to "homestead" as defined by state law.

In determining the scope of an exemption for a "homestead," the court turns to the relevant law of states other than New Jersey, given that New Jersey does not provide for a homestead exemption. The court is also informed by New Jersey’s treatment of "homestead" in other substantive areas of law. New Jersey courts take a substantially narrow view of a "homestead," requiring the real estate to also serve as a principal residence.

The debtor certifies that he had been living at the decedent’s residence for more than a year prior to his bankruptcy. However, when the debtor prepared his petition, he listed a different address as his residence. When the debtor then signed his petition three months later, he made no effort to change his listed address. This suggests that the debtor was staying with his father in order to care for him, but maintained a separate residence and did not have the intent to make the property his residence.

The court reads the term "residence" as requiring some measure of permanence. This approach is consistent with the New Jersey state law’s interpretation of the term "homestead," equating it to a principal residence. The record offers no support that the debtor considered the decedent’s residence as the debtor’s principal residence or that he intended his stay there to be permanent. The debtor did not seek to amend his schedules until nearly two years after he filed his petition.

The debtor held an interest in the property on the date of his bankruptcy filing, but his interest was the same as the interest shared by his siblings in accordance with the will and does not entitle him to a homestead exemption in any proceeds from the sale of the property. Had this property served as the debtor’s residence at the time he filed his petition, his original schedules would have reflected this fact. Or, given the timing of his father’s death and the petition date, the debtor could have sought to amend his schedules sooner. He did not. Further, at some point prior to the filing of his amended schedules, consistent with the dictates of the will, the debtor sold the property and distributed the proceeds. Therefore, it appears that the debtor had no intention to live on the property after his father’s death.

The court finds that the property was not the debtor’s "homestead" or "residence" within the meaning of 11 U.S.C. § 522(d)(1) at the time the debtor filed his petition. Therefore, he may not claim a homestead exemption. Accordingly, the court grants the trustee’s motion.

For the trustee — Thomas J. Orr. For the debtor — William H. Oliver Jr.